After the major market indices shed nearly 2% across the board yesterday, U.S. stock futures are pointing toward big losses once again this morning. Wall Street has been shaken badly by the maelstrom of accusations flying around President Trump, giving rise to serious concerns that tax cuts and other desired reforms are not coming soon … if at all.
Heading into the open, futures on the Dow Jones Industrial Average are down 0.23%, with S&P 500 futures down 0.14% and Nasdaq-100 futures were lower by more than 0.04%.
On the options front, traders fled to exchange-traded funds (ETFs) on Wednesday, driving volume at the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) to more than 5.1 million contracts. Traders often utilize ETF options as portfolio hedges, and Wednesday was no exception. Volume was extremely brisk overall, with more than 22.6 million calls and 24.9 million puts changing hands.
On the CBOE, the single-session equity put/call volume ratio surged to a one-week high of 0.73 from Tuesday’s two-month low of 0.54. The 10-day moving average, however, remained stoic at 0.63.
Headlining Wednesday’s options activity, the potential delay or demise of President Donald Trump’s pro-growth agenda prompted many financial stocks to plunge yesterday, but Bank of America Corp (NYSE:BAC) was hit the hardest, especially after Jim Cramer offered a warning on interest rates.
Even Apple Inc. (NASDAQ:AAPL) wasn’t immune to Trump turmoil risks, with analysts pointing out the company’s $240 billion in overseas cash reserves, which could stay overseas much longer than anticipated. Finally, Facebook Inc (NASDAQ:FB) was smacked with a $122 million fine in the EU over its WhatsApp deal.
Bank of America Corp (BAC)
BAC stock was among those that benefited most from Trump’s America-first agenda, with stockholders looking forward to deregulation, corporate tax cuts and a growing economy that would spur additional interest rate hikes. All of those hopes have been put on hold due to the mounting political turmoil in Washington, as traders deal with potential obstruction of justice charges and the Russian investigation.
What’s more, Jim Cramer told “Mad Money” viewers that concerns were growing that the two rate hikes left on the Fed’s agenda for 2017 may not happen now, adding to BAC stock’s malaise.
Despite all this, and despite BAC’s nearly 6% plunge, options traders heavily favored calls over puts yesterday. Volume jumped to over 1.85 million contracts on BAC stock, with calls snapping up 66% of the day’s take. However, Trade-Alert.com data indicates that many large blocks of BAC call options were sold, not bought. In other words, traders were either abandoning long call positions on Bank of America or selling out-of-the-money calls to bank premium. Either way, it was still bearish activity for BAC.